In the past two weeks I have heard forcefully stated pronouncements by agent Andrew Wylie and chair of the Society of Authors, Tom Holland, regarding ebook royalty rates. A 50/50 share between author and publisher is the only possible outcome they can accept, citing the tired and somewhat old argument we have heard before:

The publisher has little or no incremental out of pocket cost to create ebooks, therefore the income should be split in the same manner as subsidiary rights, which is generally 50/50. Read the rest of this entry »

36 Responses to “Pass the Gestalt, Please”

I would agree that primary electronic rights are not subsidiary rights (duh).

That being said, there’s nothing unreasonable about a 50/50 split for electronic rights. They may be primary rights, but the per-unit costs of e-book sales are actually ridiculously low compared to per-unit costs of print books.

Furthermore, it should be noted that the 50% royalty would be presumably based on net receipts and not the list price of the e-book. I’m sure most agents and authors would be delighted to receive a 25% royalty based on the list price of an e-book than a 50% royalty based on net receipts, especially now that most publishers have moved to an agency model in which the list price of a book is fixed and expenses are absorbed by the retailer.

Of course, pigs will fly before that happens.

I also find the assertion that “ebooks are competing with print books for readers” highly dubious.The numbers don’t provide any evidence to suggest that e-book sales are cannibalizing print sales. Print sales aren’t declining any faster than they were before publishers began releasing e-book editions, yet e-book sales have nearly doubled every year for the past three years.

Electronic publishing represents the only significant growth in the publishing industry in recent memory, so it’s no surprise that publishers want to have their cake and eat it too when it comes to compensating authors for electronic sales.

I would agree that agents and authors are being shortsighted, but only in the respect that aren’t asking for more from publishers with regard to electronic sales. They should be asking for more transparency in royalty reporting for electronic books, they should be asking for a royalty based on list-price, and they should be asking for escalating royalties for e-book sales.

As to the (duh) – its not clear to most as witnessed by how many retweets highlighted that line. Even in your own argument that ebooks aren’t decreasing print sales you may be providing an argument that they may well be a sub-right, as they aren’t taking away from a primary right channel.

As to dubious numbers I am not sure why $10 – $15 ebook sales increasing and $25-$35 hardcover sales decreasing is a net growth! Furthermore, with some exceptions, most folks will buy an ebook and read it – and therefore NOT buy another version… so if i buy a Kindle and start buying ebooks on it, i dont buy the print. What is dubious about that assumption?

Finally, publishers are putting up front huge amounts of money for trade books and on the back end the game is changing from shipping 100,000 units at $15 net (which we count as income) to now shipping 75,000 and selling ebooks one at a time at net $10 with no up front payments. That trend is continuing and soon we will be shipping 50,000 of a like title. Are advances going down? No. Are authors getting close to par print royalties on ebooks? Yes. Publishers aren’t looking for cake, we just want a morsel of bread!

For hard evidence that ebooks are competing with print books for readers one need look no further than the experience of many American University Press Publishers and other academic publishers (cf many discussions that took place at the AAUP2010 annunal meeting (twitter hashtag #AAUP10). In this sector – which is in many instances notably ahead of the trade sector on e-publishing issues – the shift is happening remarkably quickly. Fr example publishers are being required by libraries to provide electronic books (not print books) for their collections with no payment at all up front and revenue only flowing if and when the content is accessed.

The whole argument about ebook production costs being lower than print book production costs is a complete red herring. (Although publishers are somewhat to blame for this because they’ve been woefully tied to mark-ups on unit cost to determine price for decades). The real question is “what is the value of this content to the customer in this format?” Closely followed by “who is the customer – the intermediary or the consumer?

Good luck marketing, selling, promoting, an publicizing your own work – really, its a snap to build an audience. Oh, and those editorial choices you made in chapter 2 dont work and you have used 3 different tenses all throughout the book – but i am sure you will figure that out at some point….

“Even in your own argument that ebooks aren’t decreasing print sales you may be providing an argument that they may well be a sub-right, as they aren’t taking away from a primary right channel.”

I never made that argument. I think they are a primary right, but they’re just a different market. In the same way that mass market paperbacks sold at airports are different than hardcover books sold at a bookstore. You wouldn’t complain that someone buying a mass-market paperback for $6.99 at an airport was undercutting your ability to sell a $24.99 hardcover at Barnes and Noble, that would be ludicrous.

“As to dubious numbers I am not sure why $10 – $15 ebook sales increasing and $25-$35 hardcover sales decreasing is a net growth! Furthermore, with some exceptions, most folks will buy an ebook and read it – and therefore NOT buy another version… so if i buy a Kindle and start buying ebooks on it, i dont buy the print. What is dubious about that assumption?”

Everything. The competition isn’t between a e-book sale and a print sale, it’s between an e-book sale or no sale. The assumption your making is that people who buy an e-book would otherwise buy the print book. There’s no evidence to suggest that is the case.

There is however evidence to suggest that online buyers will buy an author’s complete backlist all at once (because it’s cheap and easily transmittable) whereas traditional print customers wouldn’t

“Finally, publishers are putting up front huge amounts of money for trade books and on the back end the game is changing from shipping 100,000 units at $15 net (which we count as income) to now shipping 75,000 and selling ebooks one at a time at net $10 with no up front payments.”

I don’t sympathize with this at all. Publishers were going to be shipping less copies anyway. There’s no causal relationship between the decline in print sales and the increase in e-book sales (as previously stated). The only difference now is that publishers have another revenue stream. Sure you don’t get paid up-front as you would if you were shipping copies, but on the flip-side of that, you don’t have to take any returns either.

“That trend is continuing and soon we will be shipping 50,000 of a like title. Are advances going down? No. Are authors getting close to par print royalties on ebooks? Yes. Publishers aren’t looking for cake, we just want a morsel of bread!”

It’s true that advances haven’t necessarily gone down, but it’s also true that they haven’t gone up, despite the fact that the publisher has tacked on a new primary right.

Having electronic rights on par with print royalties shouldn’t be the issue. Being compensated fairly and proportionately should. E-book royalties are made out of hot air, and the reporting of e-book royalties has been complete garbage, so it’s been difficult for authors and agents to determine what the just compensation should be.

It is clear that ebook sales are competing with print sales. What portion of the print market they impact is yet to be determined, is it paperback or hardback or both? The question remains unanswered but there is clearly some effect. Believing otherwise is, I think, just wishful thinking.

I think it is fair to say that ebook rights ought not fall under the subsidiary rights and are clearly a primary right.

Where I part ways with you is your contention that division of primary rights leads to an overall poor outcome for authors. There is no reason to believe this to be the case, especially if the process is well managed by author and agent.

That it hurts publishers (if it does which I remain divided on but on balance I’m leaning towards “it does”) is simply a symptom of the ongoing impact of digital change on the industry.

This change is weakening the publishers position vis-a-vis the author and creating the opportunity for authors to take a larger share of the pot. Publishers don’t have to like it very much, but I’m not sure it is avoidable.

It is entirely possible to see a situation emerge where one publisher sells only print and does so effectively while another sells only digital and does effectively. This need not hurt the author or either of the publishers.

Over time I’d expect to see the advances paid by print publishers decline where they don’t also acquire digital rights and the advances paid by digital only publishers to rise to reflect the increased share of the market they hold.

If print publishers wish to retain the digital rights then they will maintain their current level of advance and allow a greater share of royalties for authors, not because it is fair or logical, but because they wish to retain the author.

Eoin
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On an aside the division of english language rights by territory has helped authors as much as hurt them (though I’d like to see a full analysis of this before I commit fully to either side).

Publishers are moving from a situation where they were paid in lump for physical books and used that money to pay advances, business costs, etc. to one where the publisher is paid a smaller lump and then piecemeal with each ebook sale. So the fixed costs (royalties, overhead, payroll) stay the same, but the cash flows have become less dependable (they’re not in lump). It’s the same thing that an agency faces, being paid commission only when there’s a sale (not to mention the delays that frequently plague D&A or On Pub payments).

Yeah, ebooks are cheaper to produce and get to readers. But that doesn’t mean that publishers’ costs only go down. I’d say the newly unpredictable revenue streams are one hidden cost that definitely has to be taken into account.

Come on. Publishers should give agents and authors what they deserve, especially with the advent of e-content delivered at almost no incremental cost directly to readers and users: a 50-50 share. That is, half the profits on a full P&L taking into account all of a book’s revenue streams and costs. (One can always compromise and make it EBITDA.) Ha, ha, ha, ha, ha. (One can always compromise and give authors non-refundable advances on their share of profits, so they have money to write.) Yes, let’s call everyone’s bluff.

Great explanation Evan. The other thing to note when comparing print and ebook pricing from the UK standpoint at least is that ebooks at VATable whereas print books are not, meaning that 17.5% (20% from January 2011) of the RRP goes to the government, not the rights holders, so ebook revenue is lower than print from the outset.

As to Scott Nicolson’s comment re: getting 70% by dealing direct, in addition to the points you made about what publishers do to help create, market and sell books, he should also check the fine print – 70% of what? In the case of Amazon for example, the conditions for the DTP scheme set a maximum list price of $9.99 and the royalties are based on the consumer facing sale price not the $9.99 price, net of delivery costs and in the US only.

“The publisher responded, in a state of incredible frustration, that the author’s agent had withheld UK rights in order to try and extract an additional deal for the UK. This strategy backfired, no one bought the rights in the UK without corresponding US rights, and the author and the publisher were harmed in the process.”

“Extract” is a sanctimoniously antagonistic word for the same process by which you, a US publisher, extract the commodity you require to make your profit: a book to sell. Your implication that either by tradition or fairness the US publisher is entitled to control overseas rights is erroneous. In the cases of some books – – about American football, say, or cookbooks – – no US publisher will take those rights. As an agent I’ve either retained overseas rights or granted them to the US publisher as befits the negotiation or the project. The imputation that avarice is the only reason an agent might wish to withhold those rights is reversible.

The following anecdote simply makes no sense. “[N]o one bought the rights in the UK without corresponding US rights, and the author and the publisher were harmed in the process.” It’s hard to know where to begin. If no UK publisher will buy a book “without corresponding US rights” then no UK publisher would ever buy a book under contract to a US publisher from anyone SINCE THE US PUBLISHER WOULD CONTROL THE “CORRESPONDING US RIGHTS.” Even tautologies can be untangled; I’m not sure how to categorize this.

You can see that what you’ve written has put me in a state of incredible frustration. Worst of all is the pedal point innuendo that selfless publishers are somehow more benevolent to authors than agents, who are best compensated only when their author is best served.

I have clearly gotten a bit under your skin – my instinct is to apologize, but I am not exactly certain about what i would be apologizing.

The anecdote I told was absolutely true and it was about a UK PUBLISHER with a small US publishing operation. The publisher was denied UK rights even though it is a UK PUBLISHER…. Naturally the author assumed his publisher had global English language rights and complained when no copies could be found in London… only then did he learn his work wasn’t sold to a UK publisher. Imagine how frustrated that publisher felt knowing the author assumed that it had global rights!

I agree that extract was antagonistic if you saw this as typical American arrogance (as opposed to British arrogance!) But I deny sanctimoniousness as I do not have a platform I am trying preaching. All I was trying to do was address the issue of divide and conquer negotiations that have permeated book publishing to great harm, in my opinion. The ability of publishers to do what they should be doing – creating global value for the works they are deeply invested – is hampered by disjointed rights ownership.

A very good argument can be made that a good agent will pull together a package of best of breed rights holders to the ultimate benefit of the author, I feel strongly that in the end this creates an albatross around the rights holders, limiting their marketing and experimentation to the narrow confines of what they are allowed to purchase. (It doesn’t help our frustrated state that these rights were once assumed to be part of what a publisher purchased – but now are on a laundry list of ala carte purchasable items.)

You are absolutely right that many works are best served by different publishers in different markets – but as digital becomes more dominant, those territorial demarcations will be rendered meaningless. We need to start thinking about how to buy works so that all rights can be explored by publishers – as long as they have the capacity. Denying those rights based on garnering additional advance money isn’t strategic – its short term and harmful.

[…] Pass the Gestalt, Please In the past two weeks I have heard forcefully stated pronouncements by agent Andrew Wylie and chair of the Society of Authors, Tom Holland, regarding ebook royalty rates. A 50/50 share between author and publisher is the only possible outcome they can accept, citing the tired and somewhat old argument we have heard before: […]

I actually found this quite a well set out argument. Having said that, there are many flaws in Evan’s assumptions.
1) Evan views the eBook market as a subsidiary minority market. This justifies his aggregation argument. The truth is that any sensible spectator can see that the eBook market will become an equal portion or even a majority portion of the market in the next 10 years. Ok it may be 12 or 14 years but it is coming.
2) Evan’s viewpoint on the market is a zero sum game. This is the biggest flaw of all. I would suggest to him that eBooks are fundamentally different than hard copy books. Not only will there be many people who will own and buy both a hard copy and an eCopy, but the eBook format itself will expand the market significantly, bringing in a huge new potential readership among those who have not developed a reading habit and find hard copy books a nuisance to carry and accumulate. so I do not accept this direct battle between the eBook and the hard copy book that Even presents.
3) The price paid by the reader is now a new aggregation.
eBook RETAIL PRICE = The Production costs of the Publisher (editing, processing, e-processing) + the Marketing costs of the Publisher + Writer’s Royalty + the Publishers Margin + the eRetailer’s Margin.
It no longer includes Printing, Paper, Distribution, Wholesaler Margin and Bookshop Margin.
By taking out five significant portions of the cost normally born by the reader – and replacing those five by one new cost (eRetailer Margin) it is clear that a range of scenarios can happen.

Firstly if we are to take Evan’s Zero Sum Game, then:
a) The price of the eBook can be reduced to the Reader by the remaining four removed costs – leaving total earnings the same for all of the contributors bringing the eBook to the market – or . .
b) The price of the eBook can be left the same, to the reader, while the share of earnings split between the contributors can be reset – for example by increasing the royalty to the writer. This leaves total earnings the same for all of the contributors except the writer who gains.

Alternatively if we believe that eBooks will expand the market, then the price of the eBook can also be reduced – and whether the split of the earnings is renegotiated or not, both the Publisher and Writer will earn MORE as a result of the grown market.

Note that in all cases a significant reduction in the retail price of eBooks is wholly justified and those Publishers selling eBooks at a higher price than their hard copies are completely insane !

The question left then is whether in this new world the Writer ‘deserves’ a greater share or not. Personally I believe in the principles of a market economy. If a writer can negotiate a higher royalty because he has competing offers then good luck to him ! if he has only one offer then he has a choice between being published or not (or self publish of course – which may take on a new significance all of it’s own).

Evan’s comments about Negotiation strategy by Author’s, collectively or individually, are very well stated and correct. I believe that collective bargaining in a 20th Century Union style is a complete disaster for everyone. Establishing a reasonable negotiable ‘range’ of royalties and a base ‘fair’ contract is all well and good, but writers must negotiate their own final royalty, contract and advance etc. if Publishing is to succeed in the 21st century. Geographical rights must also be a thing of the past. The internet does not recognise international borders.

Now while I fully appreciate and agree with the fine vintage sarcasm you display regarding Scott Nicholson’s attempts to build an audience from scratch, it’s getting a bit rude to imply he’s too dumb to notice such a glaring error as using 3 different tenses all throughout the book. That kind of thing is pretty blatant and if you need an editor for that, you are not writing at a grown-up level.
That said, I’m not saying editors aren’t still necessary. However, in this economy, I’m willing to bet one could find a lot of experienced and unemployed editors willing to do some freelance for an author for very reasonable rates. In some cases “willing to freelance” may even be “desperate to work”.
I don’t see any insurmountable obstacles in the idea of an author and his agent taking their ebook rights directly to distributors and cutting the print publishers out of the original equation. I agree that if the publisher has paid a royalty, he is deserved fair payback for it, and he can rightfully argue that a competing ebook supply of the same work lowers the value of the print rights substantially, depending on factors like respective release dates and whether the work is a textbook or murder-mystery, etc.
But it can be done, so far as I can see. Whether it should be done is debatable and depends on circumstances, but that is true of almost anything in life. I may certainly be missing something here though, let me know if I am.

The underlying problems here are that the shortsightedness of book publishers in the nineties gave rise to Amazon, a deeply anticompetitive company, and that the shortsightedness of book publishers in the last ten years has . . . given further rise to Amazon, still a deeply anticompetitive company, by letting them set the retail sales terms for ebooks so much in their own favor that any move away from their comically self-serving model is viewed as a brilliant new future. Amazon is the true win-at-any-cost player in this odious game.

There will come a time when print rights will seem more like subsidiary rights than ebook rights, and presumably all the agents and author societies are trying to do is prepare for that day by shifting the terms as much as they can in their own favor. I have a hard time faulting them for this, given that publishers have demonstrated so little insight into the future of their own industry.

“Good luck…” That would be a far more effective argument if publishers were not also shoving most marketing, selling, promoting, and publicizing efforts onto all but their lead-title authors, anyway. As that is the case, the argument just comes off as smug and absurd.

Pride goeth, as they say, and publishers can either start treating their lifeblood, authors, better than their passive investors or I predict agents might start working a model to bring in professional editors for a cut, and simply bypass publishers straight to electrons and POD. Why not, if non-lead authors have to do all their own promotions anyway?

An editor taking, say, 10 points, plus an agent at 15 points, and this still leaves authors with a hefty 45 percent on Amazon, which is pretty darn close to that 50 percent you consider so outrageous. The value of publisher branding could be replaced by agency branding, the whole process still elevated professionally above vanity printing, and bye-bye publishers, bye-bye shareholders!

And publishers won’t have to worry about what kind of face anyone has, because nobody will be paying attention to them.

Most importantly for the market economy aspect of it, and thus the long-term viability of publishing, everyone in the process is an active, value-added, participant. No passive by-standers get rewarded simply because they had some spare cash to throw around.

To write a book, most authors get paid an advance up front – then when the book sells enough to repay the advance, they start earning cash royalties. Where are they going to find the funding to enable the work in the first place?

Editors need to eat too! How many will wait for their 10% to earn their keep? Who is going to monitor and audit this and ensure they are getting their share – not to mention the government who will treat this 10% as taxable income?

Where is your marketing budget? Layout and design? Permissions and 3rd party licensing budgets? Sales and promotion budgets? Publicity plan and budget… oh, right, you wouldn’t be thinking of all these issues because you aren’t a publisher.

The reality is that there is no support for a work on a self publishing platform. You are on your own. Over time I am sure they will all offer paid programs to help promote your work – but then you will be paying out of pocket for something that your publisher does automatically – and we act as your bank in financing your work!

A bit more understanding of what publishers actually do will go a long way toward dispelling the myths of self publishing.

[…] Managing Director of Group Sales and Marketing at Bloomsbury, about e-book rights and royalties at his blog Black Plastic Glasses: [A] successful and coherent publishing is not the sum of individual publishing rights, but rather […]

[…] forest (if trees aren’t too inappropriate a metaphor here). To that end Evan Schnittman, at Black Plastic Glasses, has a solidly holistic overview that’s worth reading through: The net result of this […]

Having read this reply five times over the last few days I am disappointed not to be able to grasp what comment it is in reply to and what point it is making. I don’t see anyone challenging the importance of a revenue stream for publishers. Most criticism is about the slowness of publishers in adapting to the new situation and their pricing decisions. As someone keenly interested in this topic and with many years of financial management experience I also post to teleread and would welcome some clarification Evan ?

The calculation of royalty that Evan uses is based on net sale price. Wouldn’t a better comparison of royalty rates be based on net profit if one wants to see how ‘fair’ a particular rate is? Using the same rate for both print and e-book would undoubtedly result in a smaller share of profits for the author, especially where the upfront development costs of the book have been fully amortized in a previous print edition. Is that fair to the author? The discussion of earnings is a bit of a red herring unless you also discuss the profit margins of each product as well.

As the author’s Guild states in their letter today:
“Knowledgeable authors and agents, however, are well aware that e-book royalty rates of 25% of net proceeds are exceedingly low and contrary to the long-standing practice of authors and publishers to, effectively, split evenly the net proceeds of book sales.”

Not a simple issue, to be sure, especially when you factor in the variance of margins involved with front list vs. back list titles, the timing of release of e-book editions and the amortization of development expense, the agency model, etc.

If book publishing agreements were set up as profit-sharing arrangements – yes, this would be an equitable approach… but they are not.

The publisher plays the role of the bank, R & D, promotions, distribution, warehousing (repository and platform development), and accounting. This arrangement has worked for some time as authors need guaranteed funding to be able to write books and publishers agree to the risk in order to be able to profit from that risk.

Somewhere along the line the debate has taken for granted that this is not about equality – if it was, we would be talking about zero advances and profit-sharing schemes.

Aren’t most Kindle users traditional heavy book buyers, including many women in their forties and fifties – ie not a new market at all? For them surely e-books are replacing print books. it seems disingenuous to argue otherwise. What can a specialist e-book publisher possibly do better than a conventional publisher in creating an e-book for reading on the Kindle? How many of the e-books Amazon sells for Kindle have any special features at all? For every copy of an enhanced ebook sold to a young early adopter for his iphone, there are thousands of books being sold by Amazon for a reading experience identical to that of a conventional book. The Rosetta vs Random House judgement was in 2001, pre-Kindle, a lifetime ago in e-book terms. The judgement stated: ‘ In development is the ability to incorporate within the ebook audio, graphics, full-motion video, and internet hyperlinks related to the electronic text.’ and ‘Rosetta’s ebooks can only be read after they are downloaded into a computer that contains either Microsoft Reader, Adobe Acrobat Reader, or Adobe Acrobat eBook Reader software.’ The court foresaw e-books as becoming more and more complex and multimedia. They did not foresee a reader that mimicked the experience of reading a printed book so directly, and that cannibalised sales so directly. Wouldn’t the judgement have been in Random House’s favour if they had?

Firstly we don’t have any idea what kind of people Kindle customers are or what their purchasing behaviour is. Secondly there is no evidence that eBook sales are cannibalising hard copy sales. What we do have is a lot of conjecture and lack of imagination among Publishers.

Can’t we deduce what kind of people they are, though? Why would you buy a technology made solely for reading unless you were a keen reader? And if you bought a book on it, why would you then also buy the printed version of that book? I have a Sony e-reader and would not buy an e-book and the same book in printed form, except in rare circumstances (if it won the Booker and I wanted a 1st edition, for example.) I’m curious to know what you base your own conjecture about this market on?

Cory I am just surmising from my own personal experience I know three people with Kindles. My work colleague who has had his for six months and I know he has only read one book on it because last month he got an iPad and has already read about 8 books on it. My elderly neighbour who enjoys it but has only bought three books, one of which I organised for her. Lastly my own mother – my sister bought it for her and she hasn’t even turned it on yet…. LOL

Not a scientific survey but imho demonstration that we can’t really surmise anything until we have some evidence.

This entire discussion, though interesting, is based on trying to wedge an existing model onto an out-moded one. The real change here is not the means by which books are delivered- it is the fact that publishers now have to market directly to readers, something they have never done well and are very uncomfortable with. We don’t buy books based on who published them- just as music labels are not the reason we choose artists. We buy either because we have heard good things or because the title contains information we need and, in both cases, that referral comes from social networks. If an author understands this, there is no reason why they need a traditional publisher. Instead they could compensate a social marketer with a revenue share.
This entire conversation leaves out the costs of print, storage, delivery, returns and remaindering of print titles. Authors are compensated after these costs are factored in so they are not really getting the numbers you put out there. With a pure eBook strategy we need to rethink the relationship as a pure partnership between author and marketer (which is the only function of what used to be known as ‘publishers’). They pair up because the marketer believes the work is marketable and the author believes the marketer can promote their work.
Look around you- everyone I know has bought a reader or an iPad in the last few months or plan to. Books are toast, an anachronism like vinyl albums. This is the truth that the publishing world doesn’t want to acknowledge.

Very interesting POV, been studying this for a while, thru the lens of a working writer, hungry for more of the pie. But gestalting made me see it from a macrocosm, & I am rethinking the whole thing. Gracias, the Book Doctor